Navigating ITAR Compliance is the process by which a company abides by all applicable defense-related export laws. ITAR compliance is accomplished through experienced attorneys and consultants who review the contemplated transactions and establish the appropriate export controls to comply with government regulations. The Attorneys at Arcadier, Biggie & Wood, PLLC are here to help.
ITAR Compliance – Background
Manufacturing a product for the US Military today is much more than just meeting a request for quotes or testing products to make sure they meet stringent military environmental and performance standards. The product must be properly licensed by the U.S. State Department under the International Trafficking in Arms Regulations (ITAR) and other export compliance standards including the Export Administration Regulations (EAR). All suppliers who make parts and provide services to build those systems must also be licensed.
These regulations implement the provisions of the Arms Export Control Act (AECA) and are described in Title 22 (Foreign Relations), Chapter I (Department of State), and Subchapter M of the Code of Federal Regulations. The Department of State interprets and enforces ITAR. Complying with these regulations is just as complicated and detailed a task for compliance officers and attorneys as designing fire control system components is for defense electronics engineers. Failure is not an option for either task, but in the case of ITAR compliance, it could result in multi-million dollar fines and even jail time for individuals who knowingly violate the law.
ITAR regulations dictate that information and material pertaining to defense and military-related technologies (for items listed on the U.S. Munitions List) may only be shared with U.S. Persons unless authorization from the Department of State is received or a special exemption is used. U.S. Persons (including organizations) can face heavy fines if they have, without authorization or the use of an exemption, provided foreign (non-US) persons with access to ITAR-protected defense articles, services or technical data.
These rules have been in place since 1976 and were implemented for U.S. National Security and other foreign policy objectives. Because of this, the Federal government can impose criminal and civil penalties. The government, in fact, has been known to prosecute individuals for willfully violating the ITAR or the EAR. An innocent mistake can be the basis for very substantial civil fines and penalties and possibly imprisonment.
Foreign Nationals under ITAR
Another area that companies may not understand is where and when a foreign national is allowed to be involved in defense technology development.
If they become U.S. citizens or permanent residents, they are no longer foreign nationals and no license is required to work on unclassified military projects. But even if they are not a citizen or permanent resident, it is fairly easy to get a license to work on unclassified programs. However, if they fall under the list of proscribed nations, they will not get a license. This list does change from time to time depending on U.S. policy and politics, so companies need to monitor it. Countries such as China (for defense) and Iran (more broadly), however, will probably not be coming off the lists anytime soon.
Dual-Use ITAR Compliance
One ITAR compliance issue that can range from black and white to extreme shades of gray is the concept of dual-use when a technology is used for commercial and military applications. Many dual-use cases are very simple. Missiles, for example, are on the U.S munitions list. A laptop computer for commercial applications, moreover, typically falls under dual use and is not a problem. Where it can be confusing is when an integrated circuit designed for commercial applications is modified for an ITAR-controlled application. Here, the company will have to ensure it does not need a license; the company should not assume the IC is okay because it was originally a commercial product.
A Compliance Officer at the DDTC (Directorate of Defense Trade Compliance) several years ago stated, “If you make bolts and they are used to build bridges they are commercial. If you make these same bolts and they are a specific length to hold the wings up on an F-16 Fighter, they are defense related and ITAR Restricted.”
If the intent was to design a particular product for the commercial market, but it ends up unchanged in a military program, it typically will fall under dual-use and not ITAR. Companies must monitor the CCL (Commerce Control List) as some commercial integrated circuits are subject to high-level Commerce controls. Service companies who make small fabricated metal parts or apply mil-spec paint for military programs are also subject to DDTC registration and required to have an ITAR Compliance Program.
Do Not Go It Alone
Some ITAR compliance issues need to be addressed by attorneys, while others, can be successfully addressed with consultants at a lower cost to help develop procedures and internally train employees to handle their export compliance. Arcadier, Biggie & Wood, PLLC has partnered with CVG Strategy (cvgstrategy.com) who is a consulting firm and experienced in all aspects of ITAR compliance including regulations, such as the safety control or quality assurance manager.
Companies also need to hire law firms to advise them on key strategic issues, such as voluntary disclosures and commodity jurisdiction issues, and legal opinion letters. The Law Firm of Arcadier, Biggie & Wood, PLLC can help adivce your business. We can provide proper guidance and help keep you, the company, and its owners to resolve issues
Leadership and management support are very important to the success of a Company’s ITAR Policy implementation. Senior Management must have a daily focus to provide leadership for the company to be compliant, without it the program will likely fail.
Any company that provides contracted products or services that are for the US Military are likely going to be considered by the DDTC as subject to the ITAR.
Here are the options:
- Ignore the problem, hope to not get caught and face large fines and possible imprisonment.
- Create an ITAR Compliance Officer position and hire an external expert to fill the role or send existing staff to outside training. Then wait while they create and implement an ITAR Compliance Program.
- Hire a consultant and/or law firm who will both educate the company, create the program and advice on legal issues.
An ITAR Compliance Program (ICP) is a comprehensive written system to assist a company in complying with the International Traffic in Arms Regulations (ITAR). An ICP should provide an organized, integrated operating system that: (1) ensures compliance with U.S. export control laws and regulations; (2) manages military item / export-related questions, decisions and transactions; (3) provides a streamlined management structure for processing customer transactions in a transparent and accountable manner; and (4) protects the company from penalties.
The establishment of an ICP can greatly reduce the risk of involuntarily exporting of technical information or products to an unauthorized party or for an unauthorized end-use. However, having an ICP, by itself, will not relieve a company of criminal and administrative liability under the law if a violation occurs.
Our Attorney, Maurice Arcadier, Esq. is an experienced lawyer with ITAR Compliance and can assist in the development and implementation of an ICP to allow clients to engage in compliance and protected transfer of goods and information confident that they are in compliance with the laws with regard to ITAR / EAR rules and regulations.